Wheat Market Outlook and Prices

The Wheat Market Outlook is provided by Mercantile Consulting Venture Inc.

 
 

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World Wheat Overview

 

 USDA August 12/’19 Changes in World Wheat Production

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  • The USDA lowered world wheat production 4.5 mln mt to 768.07 mln mt. The decrease was mainly because of decreases in Turkey (2.0 mln), the EU (1.3 mln), Russia (1.2 mln mt to 73 mln mt) and Kazakhstan (1.0 mln mt). The revisions were all made because of dryness causing lower yields. Production increases were seen in the US (1.6 mln), Ukraine (0.2 mln) and Argentina (0.5 mln).

  • World consumption was lowered 2.0 mln mt on reduced feed and residual use as well as lower industrial use.

  • Overall global ending stocks were reduced 1.1 mln mt to 285.4 mln mt which continues to be a record amount and 11 mln mt more than last year.

Global wheat production and trade

There is a lot of competition in the wheat markets as wheat is produced around the world. Below is a brief synopsis on last week’s market events in the major wheat origins.

  • Futures: Sept '19 contract Chicago winter wheat closed at 470-6, up 1-6 cents in Friday’s trade, down 28-6 cents for the week.

  • Sept ‘19 contract Kansas hard red winter wheat closed up 4-4 cents at 394-2, down 22-6 cents for the week.

  • Minneapolis, Sept '19 contract hard red spring wheat closed at 506-2, up 3-4 cents in Friday’s trade, down 13-4 cents for the week, while Dec ’19 hard red spring wheat closed at 518-4, up 3-6 cents for the day, down 12-2 cents for the week.

Canadian Wheat:

  • Canadian shipping week 1 data has not yet been released by the CGC. The 2018/19 marketing year ended with a total of 21.18 mln mt of wheat being delivered into the Canadian grain handling system (up 13%, 2.51 mln mt), and 18.24 mln mt worth of wheat being exported (up 12%, 2.01 mln mt).

 
Wheat Handling Summary August 19.jpg
 
  • Widespread rain the SK has replenished soil moisture but slowed harvest progress which is <1% complete vs the 5-yar average of 4%. Spring wheat conditions in AB were slightly lower again last week at 71.3% G/E. Yield estimates in AB were also lowered slightly from last week to 49.2 bpa (46.9 bpa last year).

  • The 2018/19 marketing year ending with a total of 4.78 mln mt of durum being delivered in the Canadian grain handling system (up 15%, 638k mt), and 4.52 mln mt worth of durum being exported (up 13%, 532k mt).

 
Durum Handling Summary August 19.jpg
 
  • Durum wheat in AB lost some condition from last week to 38.3% G/E. Yield estimates are just 27.6 bpa (33.1 bpa last year).

  • Harvest was slow in the Cdn. Prairies last week from widespread showers. The forecast looks dryer this week and should allow for harvest to progress. Reported yields in MB continue to be average -slightly below average.

US Wheat

  • As of Aug 12th, winter wheat harvest was 89% complete vs 93% last year. Harvest in Idaho and Washington where most of the country’s soft wheat is grown is significantly behind normal. Overall, the HRW crop continues to meet a #1 HRW grade while the SRW crop continues to be #3 SRW.  US spring wheat harvest is 8% complete vs 32% last year.

  • Harvest progress in the US spring wheat regions have been slow, just 8% complete vs the average of 30%. Crop ratings fell 4% from last week to 69% G/E.

  • Durum harvest in the US has begun (1% in ND and 3% in MO) and strong yields are being reported. Crop ratings improved to 75% in ND and deteriorated to 71% G/E in MO.

  • Contributing to the 59 mln bu increase in US all wheat production was a 24 mln bu increase in US spring wheat production to 566 mln bu, (still down 4% from 2018). Total HRS supply was raised 21 mln bu to 896 mln bu, implying a 3 mln bu decrease in HRS imports to 65 mln bu. Domestic use was raised 22 mln bu to 314 mln bu and exports were unchanged at 260 mln bu. Overall there was a 1 mln bu decrease in ending stocks (from July) at 322 mln bu, up 57 mln bu from last year.

  • The USDA lowered US durum production 1 mln bu to 57 mln bu, 20 mln bu lower than 2018. US beginning stocks were unchanged and total supply was unchanged implying a 1 mln bu increase in imports from last month to 56 mln bu, up 4 mln bu from last year. This would essentially bring US durum imports up to levels slightly below 2017/18. US domestic use was unchanged, exports were seen 5 mln bu higher, for a 6 mln bu decrease in ending stocks at 54 mln bu.

  US Spring Wheat and Durum Supply and Disposition According the USDA’s August 12/’19

US Spring Wheat Supply and Demand August 19.jpg
US Durum Supply and Demand August 19.jpg

Australian wheat:

  • Aussie wheat futures hit 3-week lows because of ongoing showers and overall market weakness. The USDA made no changes to Aussie wheat production or exports, but private estimates are sliding as the long-term forecast is dry though the critical growing period.

 

Argentine wheat:

  • BAGE left production estimates unchanged but mentioned that soil moisture was low as the crop heads into the critical flowering stage. Dryness has lowered wheat ratings from 54% G/E to 49% and forecasts indicate that dryness will persist.

 

EU wheat:

  • According to Germany’s Association of Farmer Cooperatives, wheat production in 2019/20 is expected to reach 23.8 mln mt, 18% higher than last year.

  • Strong harvest expectations in France and Britain caused Strategie Grains to sharply increase forecasts for EU wheat production and exports. Their current estimate for wheat production is 142.9 mln mt (up 2.3 mln mt), 12% higher than last year’s drought-stricken crop.

 

Black Sea wheat:

  • IKAR lowered Russian wheat production estimates 5.5 mln mt 70.0 mln mt vs the USDA’s most recent 73.0 mln mt (-1.2 mln mt from their July est.). Harvest in Russia is 38% complete as 49.8 mln mt has been harvested.

  • Wheat harvest in Ukraine is 98% complete as 27.9 mln mt worth of wheat has been harvested. The USDA is estimating that 29.2 mln mt worth of grain will be produced, up 200k mt from their July est.

Significant purchases/ trades:   

  • The only trade we saw reported was Egypt (GASC) bought 175,000 tonnes of Russian and 120,000 tonnes of Ukraine wheat at an average $218 C&F for the 15-30 Sep position. Cash prices ignored the drop in USA futures.

  • USA export sales were 462,000 tonnes for a season total 362 myn bushels, up 18% on last year, but this is quite a sharp decline on last week's 25% advance.



Wheat Market Outlook

Significant Events

  • The USDA’s WASDE report gave estimates that were much different from what the Trade was expecting. It was their corn estimate, which we show below, that was very contrary to what the trade expected. It resulted in corn futures closing limit down of Monday with weakness spilling into all other grain markets. Spec funds were huge sellers as they liquidated their long in a market which was confused with no buyers.

US Corn Crop August 2019.jpg
  • It was expected that the USDA’s August estimate would get us close to the planted acres taking into account the acres lost to “prevent planting” claims but it does not seem to us that this is the case. Even more confusing was the USDSA’s yield estimate which went up instead of down which was the markets expectation. Before delayed planting became an issue, the USDA projected the acres to be planted to corn as 92.8 myn acres in the May report and 89.8 myn the June report. Expectations from the trade are that around 3/5 myn of the original acres were not planted. The USDA is telling us more corn acres than their June estimate were actually planted. There is also a huge variation between the high/lows of what estimates are for corn yield. With the USDA the highest estimate. This leaves us and others in the markets confused and we won’t get a better understanding of what’s really out there until harvest.

  • POTUS has been encouraging the Japanese PM to purchase US agriculture goods in a bid to mitigate the negative effects of the trade dispute with China, this is ahead of plans for the US and Japan to work towards a large bilateral trade deal in September.

  • Weather around the world:

    • USA Weather analysts are agreeing on the nearby forecast for the Midwest as bringing a hefty amount of rain to Iowa/Illinois, but after the 1-5 day period, it gets far more unsteady and no conclusive opinions are given.  It looks like the precipitation will make it all the way to the eastern corn/soy belt, where they too need it, but not nearly the volume as the west, and they look to be considerably warmer in the east.  Canada remains dry with temperatures starting to cool, whilst Europe continues to trend drier except for Scandinavia and the UK. South America is still almost totally dry and temperatures in Argentina are starting to warm up following the recent frosts, Australia still has some showers in the South East and South West corners, but they remain very light. The outlook for India's monsoon remains favorable.

Outlook

Trade was not expecting a bullish report and they didn’t get one. The market’s attention will now shift to forecasted dryness in Argentina and Australia. With harvest in the N hemisphere wrapping up, wheat generally bottoms-out around this time. There is little in the outlook that promotes a sustained rally unless the S Hemisphere has major issues. Higher world stocks, lower demand and lower exports will create another year of hand-to-mouth buying and farmers selling rallies.


Primary Elevator Bids

 
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Primary elevator bids data source: PDQ


Grade Spreads in Canadian Dollars

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Relevant FOB Prices and Calculated Basis

 
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